German law firm Schultze & Braun, a specialist in business recovery, says it is warning its hedge fund and banking clients to ensure
German law firm Schultze & Braun, a specialist in business recovery, says it is warning its hedge fund and banking clients to ensure they have adequate contingency plans for their German investments as the credit crunch’s impact continues to bite.
‘We expect, from the increasing numbers and types of mandates coming across our desks, that the second half of this year is going to be grim in terms of businesses going into administration,’ says Dr Volker Beissenhirtz, a corporate restructuring specialist and head of Schultze & Braun’s Berlin office.
‘A major cause of the problems is acquired companies carrying large amounts of debt. In the normal course of events, companies struggling to repay the debt would usually be able to refinance with different terms.
‘But now struggling companies are facing major difficulties getting satisfactory terms as banks fight to secure sufficient liquidity for themselves, let alone for fresh lending. We are advising financial clients with investments in struggling German businesses to make sure they have a Plan B ready in case refinancing is not available.’
Beissenhirtz argues that German companies should avoid if possible a rush to insolvency if efforts to renegotiate debt or find new lending fall through. ‘It is no good exploring the insolvency option at the last minute,’ he says.
‘The insolvency administration path often leads to a sale of the business as quickly as can be arranged; the downside for creditors and debtors alike is that they have little influence on this process. Often the result of this procedure is not the best outcome, particularly in terms of maximising the total proceeds for distribution.
‘If time has been used wisely to get an insolvency plan procedure in place, it allows hedge funds and other major creditors and debtors to maintain the initiative, giving them more influence over the conduct of the administration of the troubled company and any sale.’
A good example of the administration path being used successfully was Ihr Platz, a 125-year old German drugstore chain that was facing bankruptcy a few years ago following a series of problems.
However, Beissenhirtz says, the company achieved a remarkable turnaround using Germany’s insolvency laws and is now trading successfully. By contrast, at private postal service operator PIN options available have been severely limited by restructuring having to be carried out on the run.
Schultze & Braun covers more than one third of Germany’s 183 insolvency courts, a proportion unmatched by any other law firm. Founded more than 50 years ago in Achern, near Baden-Baden. The firm now has more than 500 employees, including attorneys, tax advisors and auditors, providing a range of legal and financial advisory services to clients in Europe and the US. Its London office advises financial institutions and UK legal advisers on matters relating to business recovery, distressed debt and corporate insolvency in Germany.
